Your 2020 Guide to Equity Release

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What is Equity Release?

If you’re aged 55+, Equity Release is a way to unlock cash tied up in your home and make use of the fact that many homeowners have seen a notable rise in their property values in recent years.

The most common form of Equity Release by far is to borrow against the value of your home — this is known as an Equity Release Lifetime Mortgage.

This works very similarly to a regular mortgage; however, rather than having a fixed end date by which you’ve repaid the debt, you don’t have to repay the loan until you pass away or move into long-term care.

When this happens, your home is sold and the amount you owe the provider is repaid from the proceeds.

How Does an Equity Release Mortgage Work?

An Equity Release Mortgage sees you borrow against the value of your home. How much you can borrow will be determined by your provider. This figure is calculated based on factors such as your age, state of health and the value of your home.

You don’t usually need to pay any interest during the life of the loan. Instead, it’s ‘rolled up’ and repaid when the house is eventually sold, typically when you pass away or move into long-term residential care.

What’s the Equity Release Process?

  • Find an adviser
    You’ll need to a financial adviser to look at your personal circumstances and check whether equity release is right for you.
  • Receive your Key Facts Illustration and Initial Disclosure Document
    This summarises all the important details and key facts about the equity release plan you’re considering.
  • Fill in an application form
    This will be sent to your Equity Release provider along with any upfront payment due.
  • Appoint a solicitor specialising in equity release
    You’ll need a solicitor to act for you to complete all the required legal work for the contract between you and the equity release provider and act as a conveyancer.
  • Receive a professional home valuation
    The provider will require your home to be professionally valued by a surveyor qualified by the Royal Institute of Chartered Surveyors (RICS).
  • Confirm the amount borrowed
    The professional valuation will allow the provider to officially confirm the amount you can borrow, which will be sent to you and your solicitor in an Offer Letter.
  • Receive a written report from your solicitor
    Your solicitor will usually write up a report outlining the pros and cons of the equity release offer on the table. The Equity Release Council’s rules state that you must have at least one face-to-face meeting with the solicitor who wrote this letter or a representative from the firm who wrote this letter so you’re confident you understand the details of the contract you sign.
  • Sign an acceptance form and an Equity Release Council solicitor’s certificate.
  • Final legal checks in relation to the title deeds of your property before the money is transferred to your solicitor.
Casey Goodwin Paraplanner at Drewberry

With an Equity Release Mortgage you can either release the money from your home all in one go or in stages, known as a drawdown plan. This means you only ever pay interest on the amount you’ve drawn down, rather than on everything you’ve borrowed.

Casey Goodwin
Paraplanner at Drewberry

Why Equity Release?

There are many reasons people use Equity Release to free up cash from their homes. One big reason is because they don’t want to face the hassle and expense of moving and downsizing.

Some of the most common uses for Equity Release include:

  • Enhancing a small pension pot
  • Paying for in-home care
  • Adapting a home to suit reduced mobility needs.

People even use Equity Release to pay for big ticket items, such as a car, to help their children and grandchildren financially or to take a ‘holiday of a lifetime’.

Am I Eligible for Equity Release?

The biggest rule governing whether or not you can use Equity Release is your age — you need to be at least 55 for a Lifetime Mortgage.

Other stipulations include:

  • A minimum property value of £70,000
  • No current mortgage, or plans to clear a current mortgage with Equity Release
  • The property is eligible – typical ineligible properties include:
    • Flats or maisonettes in a local authority or housing authority block of more than four storeys
    • Static / mobile homes
    • Houseboats
    • Farms
    • Hotels, guest houses and B&Bs.

Some properties are ineligible because the lender needs to be satisfied that they can re-sell the property later on the open market. This protects both you and the lender by maximising the income you can expect from your home at sale.

If you’re unsure as to whether your property is eligible for Equity Release, check with your provider or your adviser.

Advantages and Disadvantages of Equity Release

As mentioned, Equity Release isn’t right for everyone. There are other options if you need to release capital for retirement, including moving and downsizing.

You may also have savings you could rely on and there is support available from the state if you are retiring with a small pension.

However, for many people Equity Release can prove a valuable lifeline, providing them with a tax-free cash injection in retirement without having to leave the home they raised their family in.

Pros of Equity Release
Cons of Equity Release

Free up cash without having to move, potentially saving you fees for estate agents, surveyors, removals, conveyancing and stamp duty

You’ll still have to pay fees for Equity Release, including fees for solicitors, advisers and surveyors

You don’t need to make monthly payments on a Lifetime Mortgage if you don’t want to during your life

The interest charged on a Lifetime Mortgage, when rolled up so you don’t repay during your life, can quickly mount up

Equity Release can reduce the value of your estate for inheritance tax purposes

Equity Release reduces the amount your beneficiaries can inherit from your home

With some providers, it’s possible to include an inheritance protection guarantee so you can safeguard a proportion of your home for your heirs

While some people might use Equity Release for inheritance tax planning, if you don’t spend all of the cash released it may still be considered part of your estate anyway

Equity Release can allow you to stay in your own home by funding carers if necessary, or by adapting your home to suit lower mobility

Equity Release may affect your entitlement to certain means-tested state benefits

Some plans allow you to draw down cash gradually from Equity Release, which can limit the amount of interest you pay and the amount you owe at any one time

Equity Release is hard to undo once you’ve entered into it, and may require substantial early repayment charges if you look to repay early

Plans that meet the Equity Release Council’s standards have a ‘No Negative Equity Guarantee’, which means you’ll never owe more than your home is worth at the point of sale

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Common Equity Release Questions...

  • How Long Does Equity Release Take?

    The equity release process typically takes a number of weeks — anywhere between 8 and 12 weeks is common. This depends on your provider and the speed with which your solicitor and the other players involved process the application.

  • How Much Does Equity Release Cost?

    The main cost of an Equity Release Mortgage is the interest you pay. Interest is compounded and rates are typically higher than they would be for a regular mortgage, so the amount owed can increase considerably over time.

    To reduce the amount you owe and keep a lid on the cost of equity release, you can opt to pay the interest on the loan.

    Equity Release Mortgages allow you to either receive the cash in one tax-free lump sum or, alternatively, draw down the cash from your home at a later date. The latter option saves on the interest you pay, as you only pay interest on the amount you’ve drawn down at that particular time.

    The Equity Release Council allows you to fix your interest rate for life, meaning it won’t change as the underlying base rate / economic circumstances shift.

    Solicitor, Adviser, Surveyor and Provider Fees

    There’ll also be one-off charges to pay at the beginning of your plan to set it up. These relate to the various professionals you need to use to get an Equity Release plan off the ground.

    Guidance from the Equity Release Council puts the total cost of setting up Equity Release at around £2,000-£3,000, although this depends on the type of plan being arranged, how complex your circumstances are and the amount of money you’re releasing from your home.

  • What is the No Negative Equity Guarantee?

    All plans approved by the Equity Release Council must meet Council’s product standards, which includes a no negative equity guarantee. This means that even as the Lifetime Mortgage increases each year with interest, you’ll never find yourself owing more than the value of your property if it were sold.

  • Can I Repay My Equity Release Early?

    If you want to repay your Equity Release Mortgage early, you may have to pay an early repayment charge. These will be listed in the documents you received before you took out the plan and can be expensive.

    Although there are some providers that don’t levy an early repayment charge, many will do so for the life of the loan, or at least for the first few years of it.

    Equity Release is designed to be a long-term financial product. If you’re planning to repay the mortgage early, consider whether Equity Release is really right for you and discuss your plans with your adviser first.

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Equity Release Help and Advice

Getting independent advice is an essential part of releasing cash from your property. An independent adviser can look at the entire market to find you the best Equity Release deal, as well as looking at your finances to check your suitability and your overall financial position.

Equity Release isn’t the right option for everyone, so discussions with an adviser are an important part of the Equity Release process. They might be able to suggest alternate means of releasing capital, from drawing down savings and investments to selling up and moving to a smaller property.

Responsible Life Equity Release

Drewberry has partnered with the trusted Equity Release Provider Responsible Life to offer our clients access to the best Equity Release Advice.

Responsible Equity Release was founded in 2010 and is part of the Equity Release Council. It is also authorised and regulated by the Financial Conduct Authority and is one of the largest UK equity release advisers, with access to every single provider across the marketplace. 99% of its reviews on independent reviews website Trustpilot are listed as 5-star.

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